As the stock market marches ever higher, it's been harder and harder to find reasonably valued equities to purchase. Some stocks have been beaten down unfairly, while others are on the verge of turnarounds and present buying opportunities.
None of the stocks featured here fit that description, and you would be well served to avoid them.
1. GameStop: Smackdown in the video game world
GameStop's (GME -0.47%) third-quarter loss, reported on Dec. 10, was wider than expected, and revenue fell short of expectations. Guidance for the full year assumed a decline in same-store sales in the high teens, compared with a Wall Street analysts' consensus for a decline of just 0.3%.
GameStop shares have fallen about 65% over the past year as the retailer continues to struggle for survival. Customers are downloading video games at home instead of purchasing in stores. Even its pre-owned game business is suffering as digital availability has grown.
In June, GameStop eliminated its dividend, triggering a 35% stock-price decline, its worst-ever one-day sell-off.
Seth Sigman, writing on behalf of the Credit Suisse analysts, explained in an investor note:
Looking out, not only is it difficult to see how results will improve in a new cycle (after all, the last cycle didn't seem to stimulate enough software/pre-owned), but what happens between now and then is more concerning. Guidance for 2019 was lowered to a shocking level, and there seems to be little if any near-term visibility.
When new game consoles are released around the 2020 holiday shopping season, GameStop may warrant another look. But until then, there's absolutely no reason to invest.
2. Six Flags: Skip this thrill ride
Six Flags Entertainment (SIX -1.88%) issued bad news on Dec. 10 and experienced one of the biggest stock-price drops in its history.
The company said it now anticipates fourth-quarter revenue declines of $8 million to $10 million below the comparable quarter last year. A Securities and Exchange Commission 8-K filing said: "North America parks experienced lower attendance in the fourth quarter vs. the same period in 2018 due to softer than expected season pass and membership sales, primarily during the holiday sales periods."
The 8-K also disclosed that the development of the Six Flags-branded parks in China has not gone according to plan. The company said its partner in China, Riverside Investment, has faced "severe challenges" because of the macroeconomic environment and China's declining real estate market.
"This has led Riverside to default on its payment obligations to the company and, as such, the Company has delivered formal notices of default under its agreements," Six Flags stated in the filing. "While the Company continues to work with Riverside and each of Riverside's governmental partners, the eventual outcome is unknown and could range from the continuation of one or more projects to the termination of all the Six Flags-branded projects in China."
Six Flags won't realize any revenue from the China agreements. The company expects a negative $1 million revenue adjustment related to the China agreements and one-time charges of $10 million.
Six Flags' dividend yield is 9.38%, with a current price-to-earnings ratio of 11. The stock is trading at a 52-week low.
Investors should be aware that the dividend is in imminent danger of being cut, and the stock price is unlikely to rise, given the most recent news. Six Flags needs several blockbuster quarters before investors should consider it again.
3. Sportsman's Warehouse: Stay out of the crosshairs of this stock
Sportsman's Warehouse (SPWH 4.93%), an outdoor sporting-goods retailer, has 87 stores across 22 western states, catering to hunters and fishermen.
Like Six Flags, Sportsman's Warehouse recently announced bad news. Last week the company slashed its fourth-quarter profit guidance, noting a number of headwinds in the quarter. CEO Jon Barker cited "temporary headwinds" that were "exacerbated by the shorter and more competitive holiday selling season."
According to Barker, the headwinds included key competitors' discounts on firearms and ammunition as they de-emphasize or exit the category, along with tough sales comps resulting from legislative changes in Washington and California. The company now expects quarterly earnings per share of $0.17-$0.21, versus previous projections of $0.29-$0.35.
Fiscal 2019 adjusted net income is now expected to be in the range of $18.8 million to $20.6 million, with adjusted earnings per diluted share now expected to be in the range of $0.43 to $0.47.
That's a big drop from the company's Dec. 4 press release, which said fiscal 2019 adjusted net income was expected to be in the range of $24 million to $26.6 million, with adjusted earnings per diluted share of $0.55 to $0.61.
Sportsman's Warehouse is in a competitive business with big players willing to discount to move merchandise. The company didn't do well in a key quarter of the year and is now left with inventory on the shelves and cash flow that's down. If the company can learn from its mistakes, it may deserve another look, but for now, investors should avoid this stock.
Your perfect stock is out there
All three of these stocks have the potential to return to an upward trajectory but will require some major overhauls in operations, investments, and marketing. Those things are unpredictable and take time. Investors should avoid these stocks in 2020 and focus, instead, on companies that are getting it right.